M/s. Pragati Vanijaya Ltd., New Delhi V. DCIT, New Delhi

ITA 1479/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2973 (ITAT-DELHI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 13-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Principle of natural justice; Earning of tax free income; Tax effect
• Section: 142(1); 14A; 115JB

Judgement Text

1 ITA NO. 1479/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 1479/DEL/201 5 ( A.Y 2011-12) PRAGATI VANIJAYA LTD. 129, TRANSPORT CENTRE, PUNJABI BAGH NEW DELHI AAACP1685P (APPELLANT) VS DCIT CIRCLE-14(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. SANAT KAPOOR, ADV RESPONDENT BY SH. ATIQ AHMAD SR. DR ORDER PER SUCHITRA KAMBLE THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 18/12/2014 PASSED BY CIT (A)-VII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE ADDITION/DISALLOWANCE MADE U/S 14A OF THE ACT IS ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 2. THAT THE CIT(A) HAS ERRED IN LAW AND FACTS IN NOT APPRECIATING THAT NO SATISFACTION IS RECORDED BY AO IN RESPECT OF CORREC TNESS OF CLAIM MADE BY AO. HENCE ADDITION MADE IN RESPECT OF SECTION 14A OF TH E ACT IS ILLEGAL AND BAD IN LAW. 3. THAT THE AO AND CIT (A) HAVE FAILED TO APPRECIATE THAT THE PROVISION OF SECTION 14A AND RULE 8D ARE NOT APPLICABLE AND NO DISALLOWA NCE UNDER SAID SECTION IS CALLED FOR. DATE OF HEARING 02.01.2018 DATE OF PRONOUNCEMENT 13.03.2018 2 ITA NO. 1479/DEL/2015 4. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT NO DIS ALLOWANCE IS CALLED FOR U/S 14A R.W. RULE 8D OF THE ACT. 5. THAT THE CIT(A) HAS FAILED TO APPRECIATE THAT INVE STMENT IS CAPITAL ASSET AND ITS INCOME WILL FORM PART OF THE TOTAL INCOME. 6. THAT THE CIT(A) AND THE AO HAVE ERRED IN NOT APPRE CIATING THAT EXPENSES WHICH WERE DISALLOWED BY THEM DOES NOT HAD ANY PROX IMATE RELATIONSHIP WITH TAX EXEMPT INCOME. 7. THAT ADDITION UPHOLD BY THE CIT(A) IS HIGHLY EXCES SIVE, ARBITRARY AND AGAINST THE PRINCIPLE OF LAW AND NATURAL JUSTICE. 8. THAT THE VARIOUS OBSERVATIONS MADE BY THE CIT(A) I N THE APPELLATE ORDER ARE ILLEGAL, CONTRARY TO FACTS ON RECORD AND BASED ON S URMISES AND CONJECTURES . 9. THAT THE EVIDENCE AND EXPLANATION GIVEN BY THE APP ELLANT AND THE MATERIAL AVAILABLE ON RECORD HAVE NOT BEEN PROPERLY CONSIDER ED AND JUDICIOUSLY INTERPRETED. 10. THAT THE ADDITIONS HAVE BEEN MADE ON BASIS OF MERE SURMISES AND CONJECTURES AND CONTRARY TO FACTS AND EVIDENCE ON R ECORD AND CANNOT BE JUSTIFIED. BY ANY MATERIAL ON RECORD. 3. RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 WAS FILED ON 28-09- 2011 AT AN INCOME OF RS. 26557915/- UNDER NORMAL PR OVISION OF LAW AND RS. 39245522/- UNDER SECTION 115JB AND PAID TAX THEREON . SUBSEQUENTLY, THE CASE OF THE ASSESSEE COMPANY WAS SELECTED UNDER COMPULSO RY SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 27-09-2012. THEREAFTER, A QUESTIONNAIRE CALLING FOR INFORMATION WAS ISSUED AN D SERVED UPON THE ASSESSEE ON 8.02.2013. IN COMPLIANCE TO STATUTORY NOTICES IS SUED U/S 142(1) AND 143(2), THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COMPA NY ATTENDED THE ASSESSMENT PROCEEDINGS. ON 07/05/2013 A SPECIFIC QU ESTIONNAIRE WAS ISSUED AND SERVED ON THE ASSESSEE. ON 07/10/2013 NOTICE U/ S. 142(1) OF THE INCOME TAX ACT,1961 WAS ISSUED FIXING THE DATE OF HEARING ON 21/10/2013. CA ON BEHALF OF THE ASSESSEE COMPANY ATTENDED THE PROCEED INGS FROM TIME TO TIME AND SUBMITTED INFORMATION CALLED FOR AND PRODUCED DOCUM ENTS FOR VERIFICATION AND EXAMINATION. INFORMATION FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS EXAMINED WITH THE BOOKS OF ACCOUNTS AND DOCUMEN TS PRODUCED ON TEST CHECK BASIS BY THE ASSESSING OFFICER. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS REQUIRED TO S UBMIT ITS EXPLANATION ON 3 ITA NO. 1479/DEL/2015 ACCOUNT OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME C LAIMED WHILE COMPUTING TOTAL INCOME ON ACCOUNT OF DIVIDEND. IN THE COURSE OF DISCUSSION THE AR CONTENDED THAT NO EXPENSES WERE INCURRED FOR EARNIN G DIVIDEND INCOME. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPAN Y EARNED DIVIDEND OF RS.3502912/- WHICH WAS A SUBSTANTIAL AMOUNT AND AVE RAGE OF INVESTMENT WAS WORKED OUT AT RS.421626596/-. THUS, THE ASSESSING O FFICER OBSERVED THAT TO HANDLE SUCH SUBSTANTIAL INVESTMENT BUSINESS EXPENSE S ATTRIBUTABLE TO INVESTMENTS CANNOT BE RULED OUT. HENCE, EXPENDITURE DISALLOWABLE WAS COMPUTED IN ACCORDANCE IN PROVISIONS OF RULE 8D OF INCOME TAX RULE, 1962 ON AVERAGE INVESTMENTS BY THE ASSESSING OFFICER AND TH E AMOUNT WAS COMPUTED 0.5% OF RS.421626596/- I.E. RS.2108133A. THEREFORE, EXPENDITURE OF RS. 2108133/- ATTRIBUTABLE TO EXEMPT INCOME AS COMPUTED WAS DISALLOWED, BUT SINCE THE ASSESSEE CLAIMED EXPENSES OF RS.950311/-, THEREFORE DISALLOWANCE U/S. 14A WAS RESTRICTED TO RS.950311/- BY THE ASSESSING OFFICER. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A) AND CIT(A) DISMISSED THE APPEAL O F THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THERE WAS NO SATISFACT ION GIVEN BY THE ASSESSING OFFICER AS TO WHY EXPENSES HAVE TO BE DIS ALLOWED. THE LD. AR RELIED ON THE ORDER OF THE HONBLE DELHI HIGH COURT IN CAS E OF H T MEDIA LTD VS. PRINCIPAL CIT BEING ITA NO. 548, 549/2015 JUDGMENT DATED 23/8/2017. THE LD. AR FURTHER SUBMITTED THAT IN ALTERNATE, THE INV ESTMENT MADE WAS THE STRATEGIC INVESTMENT FOR THE PURPOSE OF THE BUSINES S ONLY. TO SUPPORT THIS PLEA, THE LD. AR SUBMITTED THAT THE SUPPORT CAN BE TAKEN FROM AUDIT REPORT ALONG WITH THE DETAILS OF THE INVESTMENTS ATTACHED TO IT. THE LD. AR RELIED UPON THE HONBLE DELHI HIGH COURT DECISION IN CASE OF CHEMIN VEST LTD. VS. CIT (ITA NO. 749/2014 ORDER DATED 02.09.2015). THE LD. AR ALSO S UBMITTED THAT IN ASSESSEES OWN CASE FOR A.Y.2008-09, THE ISSUE IS D ECIDED IN FAVOUR OF THE ASSESSEE (ITA NO.2008/DEL/2011 ORDER DATED 22.11.20 17). 6. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSIN G OFFICER AND THE CIT(A). 4 ITA NO. 1479/DEL/2015 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE ISSUE INVOLVED IN THE PRESENT CASE IS A LREADY DECIDED IN FAVOUR OF THE ASSESSEE FOR A.Y. 2008-09 BY THE TRIBUNAL BY US . THE TRIBUNAL HELD AS UNDER: 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE HON'BLE HIGH COURT IN CASE OF H. T. MED IA LIMITED HELD THAT FOR THE PURPOSE OF RULE 8D (2)(II), THE ASSESSING OFFICER W AS REQUIRED TO EXAMINE WHETHER THE ASSESSEE HAS INCURRED EXPENDITURE BY W AY OF INTEREST IN THE PREVIOUS YEAR AND SECONDLY WHETHER THE INTEREST PAI D WAS DIRECTLY ATTRIBUTABLE TO PARTICULAR INCOME OF RECEIPT. THUS, IT IS THE MANDATORY REQUIREMENT U/S 14A OF THE ACT, 1961 AND RULE 8D OF THE INCOME TAX RULES, 1962 TO RECORD SATISFACTION, AND IF THE SATISFACTIO N/REASONS ARE NOT MENTIONED THE QUESTION OF APPLYING RULE 8D DID NOT ARISE. CO NSEQUENTLY, ON THE ASPECT OF ADMINISTRATIVE EXPENSES BEING DISALLOWED SINCE THER E WAS A FAILURE BY THE ASSESSING OFFICER TO COMPLY WITH THE MANDATORY REQ UIREMENT OF SECTION 14A(2) OF THE ACT READ WITH RULE 8D (1) (A) OF THE RULES RECORD OF SATISFACTION IS REQUIRED THERE UNDER. THE QUESTION OF RE-APPLYING RULE 8D(2) (III) OF THE RULES DID NOT ARISE. IN THE PRESENT CASE ALSO, THE SAME DOES NOT ARISE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE FAILED TO TAKE INTO ACCOUNT THE EXPENSES INCURRED BY THE ASSESSEE AND THERE WAS NO SATISFACTION RECORDED BY THE ASSESSING OFFICER REGARDING INVOCATION OF RULE 8D. THE HONBLE HIGH COURT IN CASE OF ACB INDIA LTD. (FORMERLY M/S ARYAN POL BENEFICIATIONS PVT. LTD.) VS. ACIT BEING ITA NO. 615/2014 DATED 24 TH MARCH, 2015 HELD AS UNDER:- 4. THE A.O, INSTEAD OF ADOPTING THE AVERAGE VALUE OF INVESTMENT OF WHICH INCOME IS NOT PART OF THE TOTAL INCOME I.E TH E VALUE OF TAX EXEMPT INVESTMENT, CHOSE TO FACTOR IN THE TOTAL INVESTMENT ITSELF. EVEN THOUGH THE CIT(A) NOTICES THE EXACT VALUE OF THE INVESTMENT WH ICH YIELDED TAXABLE INCOME, HE DID NOT CORRECT THE ERROR BUT CHOSE TO A PPLY HIS OWN EQUITY. 5 ITA NO. 1479/DEL/2015 GIVEN THE RECORD THAT HAD TO BE DONE SO TO SUBSTITU TE THE FIGURE OF RS.38,61,09,287/- WITH THE FIGURE OF RS.3,53,26,800 /- AND THEREAFTER ARRIVE AT THE EXACT DISALLOWANCE OF 0.5%. 5. IN VIEW OF THE ABOVE REASONING, THE FINDINGS OF THE ITAT AND THE LOWER AUTHORITIES ARE HEREBY SET ASIDE. THE APPEAL IS ALLOWED AND THE MATTER IS REMITTED TO WORK OUT THE TAX EFFECT TO TH E A.O WHO SHALL DO SO AFTER GIVING DUE NOTICE TO THE PARTY. THUS, IN THE PRESENT CASE NO SATISFACTION/REASON RE CORDED BY THE ASSESSING OFFICER AS TO WHETHER THE ASSESSEE INCURRED THE EXP ENDITURE OR NOT. MERELY COMING TO THE CONCLUSION THAT THE REVENUE IS NOT SA TISFIED THE ASSESSEES CLAIM THAT NO EXPENDITURE WAS INCURRED CAN NOT SUFF ICE THE PURPOSE OF THE INVOCATION OF RULE 8D OF THE INCOME TAX RULES, 1962 . THUS, THE ISSUE CONTESTED BY THE ASSESSEE IS SQUARELY COVERED BY TH E JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE. THEREFORE, IN LIGHT OF THE DECISION IN THE EARLIER YEAR, THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH MARCH, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 13/03/2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 6 ITA NO. 1479/DEL/2015 ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 02/01/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 02/01/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 14.03.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 1 4 .03.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.